TOP 5 HOT IDEAS

DATE: Monday May 13, 2013

Guidelines for Top 5 Trading:
Proactive – Enter trade 20 minutes before data, 25 pip stop, 25 pip first target
Reactive – Enter trade 5 minutes after data release, 20 pip stop, 15 pip target

1. AUD/USD – NAB Business Confidence

FUNDAMENTALS
NAB Business Confidence expected @ (9:30PM ET / 1:30)
Our View – Neutral
Reason – Neutral
If Business Confidence index exceeds 5 = Buy AUD/USD
If Business Confidence Index is -1 or lower = Sell AUD/USD

Australian business confidence numbers are scheduled for release Sunday evening and with the AUD/USD trading at parity, any piece of data can take on increased significance. The recent rate cut should help to bolster confidence but deterioration in domestic and external economic activity could also keep improvements limited. Therefore we feel the data is best traded reactively. If the business confidence index exceeds 5, we expect the AUD/USD to rally. If the index drops to -1 or lower, we expect the AUD/USD to slide. REACTIVE TRADE

TECHNICALS


1.000 broken but retaken
.9800 deep support
Bias remains down

The Aussie broke par in Friday’s trade but was able to recover suggesting that the pair may retrace to 1.0050. The bias however remains down and deep support does not come in until .9800

2. NZD/USD – Chinese Industrial Production

FUNDAMENTALS
Chinese Industrial Production expected @ 9.4% (1:30 AM ET / 5:30 GMT)
Our View – Neutral
Reason – Neutral
If Chinese Industrial Production growth exceeds 9.5% = Buy NZD/USD
If Chinese Industrial Production growth is less than 8.8% = Sell NZD/USD

Both NZD/USD and AUD/USD are risk currencies that are particularly sensitive to the performance of the Chinese economy. Since we already discussed the outlook for the AUD/USD, lets take a look at NZD/USD, which should also move on the Chinese industrial production figures. Both IP and retail sales will be released at the same time but IP is generally more important. Unfortunately the data is best traded reactively because it is difficult to handicap. Therefore if Chinese Industrial Production growth exceeds 9.5%, the NZD/USD can be bought for a quick recovery trade. If Industrial Production growth is less than 8.8%, the NZD/USD can be sold.
REACTIVE TRADE

TECHNICALS

.8300 broken
But .8250 holds
.8350 now caps upside

The kiwi followed Aussie taking out the .8300 support level before rebounding a bit. 8350 caps upside for now while 8250 is the near term support

3. EUR/CHF – Swiss Retail Sales

FUNDAMENTALS
Swiss Retail Sales expected @ 2.4% (3:15 AM ET / 7:15 GMT)
Our View – Neutral
Reason – Neutral
If retail sales growth slows to 2.0% or lower = Buy EUR/CHF
If retail sales growth exceeds 2.7% = Sell EUR/CHF

Switzerland does not release many economic reports so when a piece of data is on the calendar, it can be important. This is particularly true of Monday’s retail sales release as consumer spending is the backbone of every economy. Unfortunately Swiss data is difficult to handicap and best traded reactively. If retail sales growth slows to 2.0% or lower, EUR/CHF can be bought for a move higher. If retail sales growth exceeds 2.7%, EUR/CHF can be sold. REACTIVE TRADE

TECHNICALS

Strong move higher
1.2450 caps for now
1.2400 near term support

The powerful breakout in EUR/CHF took it all the way to the 1.2450 level but there the pair has stalled a bit. 1.2400 now forms the near term support.

4. USD/JPY – US Retail Sales

FUNDAMENTALS
Retail Sales expected @ -0.3% (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – ICSC up but Redbook down
If Retail Sales grow by 0.1% or more = Buy USD/JPY
If Retail Sales grow contracts by -0.4% or more = Sell USD/JPY

Monday’s U.S. retail sales report is probably one of the most market moving pieces of data this week. While we would have liked to place a proactive trade, the divergence between the ICSC and Johnson Redbook surveys make handicapping this month’s release tough. Our bias favors stronger numbers but with the Johnson Redbook survey reporting a drop in spending in April, it is not advisable to trade the data proactively. In contrast the International Council of Shopping Centers reported a strong rise in spending last month. As a result, the data is best traded reactively. If retail sales grow by 0.1% or more, USD/JPY can be bought for a break of 102. If retail sales contracts by 0.4% or more, USD/JPY can be sold for a move down to 101. REACTIVE TRADE

TECHNICALS

The upside break extends
101.50-102.00 caps the rally for now
100.50 supports
5400 extends support

The upside break in USD/JPY through the key 100.00 extended but the pair now stalls at long term resistance level of 101.50-102.00. A break higher would open up teh run to 103.00 while 100.50 now acts as support.

5. EUR/USD – Euro Area Finance Ministers Meeting

FUNDAMENTALS
Euro Area Finance Ministers Meeting @ (9 AM ET / 13 GMT)
Our View – Neutral
Reason – Neutral

We are not expecting much from Monday’s Euro area Finance Ministers meeting. However a number of key officials will be speaking that morning and their comments could affect the euro. We encourage traders to watch the headlines carefully because any big surprises could have continuation. The only opportunity is to trade the event risk reactively. REACTIVE TRADE

TECHNICALS

1.2950 broken but pair recovers
Deep value area?
1.3050 caps for now

The EUR/USD crumbled on Friday taking out the key 1.2950 level but was able to end up above it, suggesting that it may have set up a near term double bottom in place. 1.3050 caps the upside for now while a break of 1.2925 opens a run towards 1.2850 support.